There are few things in life worse than uncertainty. That holds true for the economy just as it does for people. Yet that’s where we are. Many sectors of the economy have been turned upside down in the COVID-19 pandemic. Most will return eventually. Some may not. Others will be completely reimagined as we enter a new normal.
Virtually Every Commercial Real Estate (CRE) Asset Class Has Been Impacted
Retail spaces (both indoor malls and strip centers) were already struggling amid the e-commerce revolution. That revolution has been accelerated by the pandemic. Even tech-challenged seniors are learning how to order everything from toilet paper to furniture online. Brick-and-mortar stores will probably always be with us, but new developments will likely need to look different to be better prepared for another wave or another pandemic. Owners will need to show that they have some money in reserve should they need to survive another months-long shutdown in the future. Retail spaces anchored by grocery stores often have the best chance of attracting traffic.
Hotels and other hospitality properties as an asset will survive. People will always need and want to travel. As with retail properties, however, new ones will need to be designed somewhat differently. Owners will also need to be financially prepared for a potential shutdown.
Multifamily housing as an asset class hasn’t been hit as hard as retail and hospitality. There will always be a market for multifamily residential properties. When shopping for a new home, some renters and owners may be less anxious to choose a location where they’re in such close proximity to their neighbors and have common spaces like swimming pools and laundry rooms. However, many people will also need to downsize as they recover financially. This might increase the popularity of this type of housing. (Self-storage spaces typically thrive amid downsizing.)
Office spaces, which are often part of industrial parks and mixed-use developments, will likely become smaller overall as many companies discover that much of their workforce can successfully work remotely. The design of office spaces will likely change, with touchless doors and electrical switches, fewer open-space work areas and more outdoor gathering areas.
There’s been a decrease in CRE investing since the start of the pandemic, as many people take a step back and wonder what’s next for all of their investments. However, global institutions remain cautiously optimistic about CRE investing over the long term and even over the next year.
Investors are looking at the trends discussed above. They’re also looking at investments in spaces that are thriving in the pandemic, like data centers, medical/science facilities and infrastructure assets like cell towers that need land.
Some Best Practices for CRE Investing During the Pandemic
There are a lot of opportunities to buy CRE properties, but in this uncertain economy, what are some best practices?
- Look for opportunities where you can purchase an asset for less than its replacement cost (what it would cost to buy the land and build a new property on it).
- Buy properties where tenants are likely to stay put – those where the tenants have long leases and/or where the rent increases are lower.
- Buy properties where the lease is completed.
- Look for developers with an eye to the future – those building spaces with outdoor areas, open designs for indoor spaces, touchless doors, and fewer communal desks and work areas. All of these will make social distancing easier when people need to live, work and pursue other activities in groups in the new normal.
Trust Experienced Private Real Estate Investment Professionals
If you’re considering adding real estate investments to your portfolio, there are many good opportunities available. However, you need professionals who have the experience and skills to study economic, demographic and overall trends and choose the opportunities with the greatest chance of success. You also need pros who will manage those investments to help ensure that they reach their potential.
Private real estate investment firms do all of these things. Moreover, by pooling their clients’ assets, they can take advantage of unique and compelling opportunities that aren’t available to most individual investors.
For more information about how the investment professionals at Realty Capital Partners (RCP) can help you get the most from your investment dollars, call us at (469) 533-4000 or email us at email@example.com.